It's hard to believe but it's been 6 months since we've bought our first SaaS.
Keep in mind as you go through these that we are primarily focused on B2B SaaS companies.
We've made some mistakes and still have a lot more questions than answers, but we're pushing through, figuring out a model using our own cash before raising our first fund. At the very least, our personal portfolio will be the fleet leader for the fund, meaning we'll run into issues with our current portfolio before we run into them with the fund.
Diligence is hard. It's even harder to do technical diligence while looking at random files through a screen share in your third favorite programming language.
- Reliability / Uptime - Make sure you can view the error logs of the servers. Note any crashes, or uptime less than 99.9%. If it's less than that, why is it so low? There should not be any response times greater than 1 second. How frequently are response times longer than that? Why?
- Code Quality - This is so hard to do before getting full access to the code. I don't think we have an answer yet. The short of it is that no matter what kind of diligence you do, you're going to run into surprises.
- Architecture diagrams - It's important to know where a product is going to fail first. All software has limits, and you just need to know where those are.
The Passive Income Myth
- If you think you're going to buy something, and not touch it for two years and get money in your bank account every month, you're somewhere between ignorant and wrong. Bottom line is that thinking this is going to be passive income straight up will not work. These SaaS companies do not have intrinsic value like land does (in most cases in the micro-SaaS world). They can and sometimes do go to zero.
- People will have questions. Someone needs to answer them. People are going to have issues (even if there are zero bugs, which is highly unlikely). You will have to answer them.
- Your first few (or 3 in our case) are going to be flaming hot dumpster fires at times. It's nice to have partners to both spread the work out as well as spread the risk out. I think in another few months we'll have a much more solid playbook on how to buy and how to operate, but it's been a difficult journey so far to say the least.
You're buying a job
- Yeah, you are. Buying a micro SaaS is buying a job. It's now your job. And there probably isn't enough cashflow to hire a US based dev full time, so that engineering work is probably going to be just you for a while. Alternatively (like we've done), you have to scour through hundreds of mediocre devs on Upwork at cheap rates in inconvenient time zones. It sucks.
Growth is the answer
- If you have amazing engineering chops, congratulations... but it doesn't matter half as much as growth does. If you can't grow the product you just bought, find someone who can and partner with them or start studying. This is where 80% of the work is.
Dev Ops Is Hard
- Keeping things online as they're growing is hard. Most likely, the thing you bought has a weird way of doing things (docker compose on a single digital ocean droplet? Yup) that was comfortable for the previous team but is uncomfortable for you.
- As soon as you take the reins, you should ask the seller to walk you through a new deploy. Make a small change to the readme or something, commit it, and go end to end through a deployment. Document EVERYTHING along the way. That will at least give you some confidence.
Observation Is Hard
- I still cannot believe how difficult it is to get basic business metrics. It's so important and such a pain point I'm going to build a solution for ourselves to monitor all the usual metrics, plus some churn prediction. Maybe this turns into a saas, not sure yet.
- In the mean time we have some basic stuff hooked up to Metabase and sent to a slack channel each morning. It's a nice way to know how things are going. It took me an embarrassingly long time to even see which company was growing the fastest quantitatively. (it's Sheet.best :)
These are not liquid assets
- We ran an experiment last week putting one of the projects up for sale. Partly because we bought too many too quickly, and partly to test liquidity as a seller. Lo and behold there are a bunch of damn tire kickers on the marketplaces. I'm sure there are some good people in there, but zero people have asked for a meeting (out of 35 or so interested parties), which I find strange.
Also, some people are dumb... Ah yes, let me send you "the data" which is conveniently located in "the spreadsheet"... lol, I'll get that right over to you.
- I know there's a model here that works. I'm going to find it (and share it!) and scale it.
- If you're considering jumping in, just do a small one, and understand that it's going to be hard. If this was easy, everyone would be a passive income millionaire, writing books and courses on how to be a passive income millionaire.
- Get the obvious metrics in a report daily, and turn obvious knobs to unlock growth and increase conversion.